Renewable Energy Policies in China, Korea and Japan: experiences. and the way ahead

Transcription

1 Renewable Energy Policies in China, Korea and Japan: experiences and the way ahead 1. Introduction Ping li Renewable energy is expected to play an increasingly important role in enhancing the long-term energy security, alleviating climate change. However, renewable energy industries in general are still at an early stage of development, lack sufficient market competitiveness, and need supportive policies. This paper reviews renewable energy policies (focusing on renewable power generation policies) experiences in China 1, Korea and Japan, and explores the way ahead. 2 Policy experiences 2.1 China In recent years, China is determined to accelerate the development of renewable energy resources, aimed to raise the share of non-fossil fuel (renewable energy and nuclear power) in total primary energy consumption to 15% by Specifically, the targets for installed wind and solar power capacity, which were initially set at 30 GW and 2GW, are recently widely proposed to raised sharply to around GW and 20GW by 2020, stimulated by China s commitment of 40-45% reduction of GHG emission intensity compared to 2005 level as well as rapid development of wind and PV market and industry both domestically and internationally in last years. Without considering the traditional use of biomass, renewable energy (mainly hydropower) accounts for 9% of China s total primary energy consumption in China s government has implemented a series of supportive policies during the past decade, especially since the Renewable Energy Law was passed in Hereinafter, China refers to mainland China 1 / 11

2 From 2003 to 2008, Chinese central government had carried out five rounds of Concession Programs for dozens of large scale grid-connected onshore wind power projects, in order to promote investment and identify attractive and reasonable (hopefully as lower as possible) prices for electricity from wind power projects. The winner will be offered a fixed price based on competitive bidding results for 30,000 full load hours; The grid companies are obliged to purchase all the electricity generated by these wind power projects; The difference between the wind power price and the conventional power price is shared among all the provincial grids 2. These five rounds of concession programs solved the major market and economic barriers before 2002, and laid concrete foundation for setting up feed-in tariffs for onshore wind power projects later. As of 2009, the installed wind power capacity reached 25GW in China, the second largest in the world. Drawing on these experiences, China conducted a 10 MW grid-connected solar PV concession project in Gansu Province early 2009, resulted in the winning bidding price of RMB1.09/kWh. Taking this result in consideration, the temporary price for four grid-connected PV projects in neighboring province Ningxia were set at RMB1.15/kWh later. In early 2010, China decided to continue to carry out concession programs with 4 offshore wind power projects, 13 large-scale solar PV projects and one or more concentrated solar thermal power (CSP) projects. Feed-in Tariffs (FITs) was introduced in 2005 for large bio power projects, equaling the standard price for local coal-fired power plants in 2005 plus fixed premium of RMB 0.25/kWh for 15 years. In 2009, based on the result of 5 rounds of onshore wind power concession programs, FITs for onshore wind power projects in different regions were set at four levels between RMB /kWh for 20 years, depending on resource and construction conditions. Generally, onshore wind power industry are booming continously around the nation in recent years, but began to suffer from grid integration problems and instable biomass feedstock supply due to rapid development pace as well as poor planning and management. As grid-integration problems emerge as the key barrier (especially for wind power) in recent years, China amended the Renewable Energy Law in 2009, requiring that government shall establish China s Renewable Portfolio Share (RPS) policies by determining the share target and 2 Li Junfeng,etc. China Wind Power Report 2007,China Environmental Science Press Beijing 2 / 11

3 implementation regulations on purchase of full amount of electricity from renewable energy by power grid companies enterprises, and that the power-grid enterprises shall develop and apply such technologies as smart grid. During last decade, China has provided subsidies to hundreds of public off-grid wind and/or solar PV power plants and household wind/pv systemsin the central and western regions without access to electricity. In early 2009, China s central initiated China s solar roof program, providing 111 Building-Integrated PV (BIPV) projects (91MW) with subsidy of RMB 20 per Wp. The following larger-scale Golden Sun program initiated in July 2009 covers around 50-70% of investment of PV station and related transmission system. In addition, China also granted subsidy for qualified domestically wind turbines in The preferential tax policy include cut of the VAT, income tax and import tax (on wind power industry) for different renewable power generation projects. Quite recently, it is proposed that China introduce carbon tax in the next five years. However, the proposed initiate tax rate of RMB 10-20/tCO2 seems too low to enhance the competitiveness of renewable energy in near future Korea Korea started Green Growth policy initiatives in 2008, and decided to cut its greenhouse gas (GHG) emissions by 30% from the business as usual scenario(4% from 2005 level ) by 2020, and set a renewable energy share target of 6.08% by 2020 and 11% by It is expected that installed wind capacity increase significantly from 199MW in 2008 to 7.3 GW (16.8 TWh) by 2020 and 10 GW (27.4TWh) by 2030, accounting for 11.6% and 12.6% of renewable energy supply. The share of PV contribution is planned to increase to 3.2% by 2020 and 4.1% by Tidal power generation is expected to expand to 5.2% by Korea introduced FITs regulation in 2002 and opened an opportunity window for investment in new and renewable energy, especially solar PVs and wind power generation. Wind power generation is eligible for a 15-year FIT of Won/kWh (close to the Chinese FITs for 3 Research Team of The Institute of Finance Science of Ministry of Finance of P.R.China. The design and thoughts on Chinese carbon tax policy [J].Regional Finance Research. 2010(1): / 11

4 onshore wind 4 ) that is scheduled to be reduced by 2% every year after October However, the Korean wind farm business is still behind schedule and has been slow so far for several reasons, including the complex system for approval of developments caused by the conflict among existing laws difficulty in getting permits for grid connection, and limited sites. The FIT for solar PV was initially set at KRW/kWh and lowered slightly in coming years. Consequently, the annual PV installation increased rapidly and even dramatically to unprecedented 297MW in 2008 due to high return (IRR estimated up to 20% ) and worry about declining price in next year. With the PV business overheating, Korean government further differentiated and lowered FIT (ranging from KRW/kWh since Dec 31, 2009 for different size projects, more than 2 times the tariffs for the PV projects in Gansu and Ningxia, China ), reintroduced the cap on PV installation. 5 Hampered by cut in tariff, the annual PV installation also went down to approximate 78MW in FIT was criticized recently for being anti-competitive and causing difficulty in forecasting electricity generation. In 2005, Korean government established the Renewable Portfolio Agreement (RPA), signing agreements with the nine largest energy suppliers to provide financial support of 1.2 trillion KRW for installing new and renewable energy facility (359MW) between 2006 and After 2009, Korean government plans on reaching new 2020 target by implementing a renewable energy portfolio standard (RPS) by 2012, which will replace the RPA and feed-in tariffs (FITs) currently in operation. The mandated share of renewable generation is 2% in 2012, and will increase 10% by Participants will be able to meet their quotas by either buying renewable energy certificates (RECs) from independent power providers, or earning RECs through their own generation 6. The detailed regulation is still under discussion. Korean government initiated 100,000 solar-roof deployment programs in 2004, and initiated 1 million Green Homes program which cover previous has focused on a variety of resources such as PVs, Solar thermal, Geo-thermal, Small wind and Bio energy. In addition, for the installation of a new and renewable facility, 10% of the cost is deductible from income or corporation tax. Korea is considering the creation of a national carbon cap and trade market by 2012, but so far has not decided on detailed regulations. 4 Assuming exchange rate of about 1: 160 between RMB and KRW 5 WEBCAST, January 26, 2010, FIT For Life: The Importance of Feed-in Tariffs in Driving Global PV Demand 6 Australian Trade Commission(2010).Clean and Renewable Energy Market Opportunities in Korea and Australia 4 / 11

5 2.3 Japan 7 Renewable energy (including hydro power) accounted for 8.4% of Japan s final energy consumption in In the optimal case of introduction, the ratio of renewable energy in primary energy supply in Japan is projected to be 9.0% in 2020 and 11.6% in To date, promotion strategies in Japan for new and renewable energies have focused on the Renewable Portfolio Standard (RPS) since The national total target is 12.2 TWh for 2010 (nearly 1.35% of national electricity supply) and 16 TWh for 2014.To date, Japanese RPS target amount have in fact been exceeded every year. In fiscal 2008, newly generated 7.92 billion kwh exceeded the required amount of 6 billion kwh, and the accumulated 7.04 billion kwh was banked, meaning that an amount exceeding required amount was carried over to the next year 8. However, Japanese RPS is criticized for its small target. In addition, Grid issue was first raised as early as 2003 in Japan and since then become national common issue. Japan launched the New Buyback Program for Photovoltaic Generation in November 2009, which obliges electric utilities to purchase excess electricity generated through Photovoltaic facilities at specified prices for 10 years. The initial purchase price is set at 48/kWh (nearly twice the households retail price of 20-23/kWh) for households PV system (less than 10 kw) and 24/kWh for others non-commercial purpose PV systems. An all-participating system is established in which solar surcharges are collected from all electricity users. In this way, Japan's RPS and FIT Program have been segregated to a certain extent. Japan is now further considering a full FIT program. If Japan introduces a full buy back program, there is the possibility that the continuation of RPS system may be reviewed and altered. Japan s ubsidies and tax incentives had thus far assisted PV power generation projects and wind power generation projects from FY1997 to FY2008; In January 13, 2009, Japan restarted to provide subsidy to PV system. The non-residential PV applications are eligible for 7% tax-free Yoko ITO.New Buyback Program for Photovoltaic Generation; Issues in the view of Electric Utilities Industry Policy. May / 11

6 (for small and medium enterprises) or immediate amortization, as well as exemption from fixed asset tax. 9 In Mar 2010, Japan s Cabinet endorsed Cap and Trade Climate Change Bill, details of which will be worked out within a year of the bill becoming law. 3. The way ahead It is clear that China, Korea and Japan have undergone different supportive renewable policies in past years. However, all the three countries are in the process of transforming policy framework to investigate the way ahead. 3.1 Major policy tools During the past two decades, more and more counties have introduced a variety of supportive renewable energy policies, mainly including: (1) Competitive bidding, such as UK s Non-Fossil Fuel Obligation (NFFO) in 1990s in United Kingdom and the competitive concession program since 2002 in China; (2)FITs, such as ongoing programs in Germany, Spain, Korea and China (only for bio-power and onshore wind projects so far), and Japan Japan(only for PV so far); (3)RPS, such as UK s Renewable Obligation after NFFO, ongoing RPS in Japan, U.S., Australia, as well as newly proposed RPS in Korea and China; (4) net metering, which are most popular in US; (5)Subsidy and tax credit/cut in many countries; and (6) carbon policies, such as carbon tax and/or Cap and Trade program, etc,. It seems there was a trend towards RPS in the past decade. Many states in US and Japan where RPS dominated, however, are recently getting interested in FITs, indicating the different applicability and possible combination of various policy tools. The NFFO, an early and famous effort of competitive bidding was criticized and abolished because of many delays or failures in finishing projects due to several barriers, particularly too low-cost bids to make the project viable. However, China s wind power concession programs generally proved successfully after several rounds of bidding and improvements in rules to establish balanced criteria with less emphasis on low price and more on technological requirements. China s wind power concession programs indicates that well designed competitive bidding program could help government in conducting demonstration projects, promoting early 9 Yoko ITO.New Buyback Program for Photovoltaic Generation; Issues in the view of Electric Utilities Industry Policy. May / 11

7 deployment, accumulating the cost data, and forming reasonable FITs. However, as the technologies mature, price in the bidding offers converge, and mass deployment starts, project-based competitive bidding will lead to massive and unnecessary executory cost of both government and investors, and need to be replaced with FIT, RPS, or net metering. FITs have propelled some countries to the forefront of the global RE market and industry, such Germany in wind and solar PV industry. However, the unexpected booming, gold rush and fluctuation in installation of PV systems in Germany, Spain, Korea and Italy during the past 3 years indicate the inherent deficiency of FITs in the context of rapid technological progress, dramatic cost decline, and strong lobbying. In fact, government-controlled FITs in these countries always lag behind and sometimes distorts PV market, increase government/consumers financial burden, and damage government s credibility regarding fairness and efficiency. Therefore, FITs are rather suitable for the relatively mature renewable energy technologies with relatively low and predictable cost. RPS mechanism, especially when coupled with tradable Renewable Electricity Certificate (REC), is believed to be able to promote competition, efficiency and innovation that will deliver renewable energy at the lowest possible cost. RPS need to address the following key issues: (1) obliged target and eligible technologies. RPS is likely works not as a promoter but as a cap, if the obliged target is too low such as the case in Japan and Australia. In addition, if promoting technology diversity (for example, promoting PV) is a priority goal, then an RPS design may include solar set-asides (which speificy what portion of an RPS should come from a specific technology) or combined with credit multipliers(which increase the value of RECs awarded for each MWh produced by eligible technologies) as Japan and some states in US do. (2) Market structure and obliged entities. Generally, the experience in U.S. indicate that RPS is expected to realize potential efficiency only in the restructured market where a group of independent and competitive market players exist and are obliged (usually the electricity retailer).on the other hand, regulated markets are dominated by long-term bundled contracts for electricity and RECs, while restructured markets more often dominated by short-term trade in electricity and RECs seperately. In this sense, further and deliberate restructuring of the electricity sector is needed in China, Korea and Japan to make RPS work efficiently and stably. (3) Cost recovery mechanism. A RPS program should ensure that prudently incurred RPS compliance costs can be 7 / 11

8 recovered in market-oriented electricity rates and shared fairly across all utility customers, which call for liberalized electric market and relevant policies. In addition, given uncertainty in future costs, it is reasonable to adopt cap measures, such as alternative compliance payment, retail rate cap, renewable energy contract price cap, per-customer cost cap, or financial penalty. Net metering enables customers to use their own generation (usually distributed generation system) to offset their consumption over a billing period, meaning that customers receive retail prices for the excess electricity they generate. Net metering is a market oriented, low-cost, easily administered method of encouraging customer investment in renewable energy technologies. However, in some cases the value increased through net metering still can t cover the high investment cost of renewable energy facilities, such as PV. In this case, tax credit or subsidy based on investment cost could be a complementary policy tool. Subsidy and tax credit/cut are widely used to make it economically viable to install renewable energy facilities or procure renewable energy products, mostly in demonstration projects. It is desirable to expand the use of these policy tools to promote research, development and demonstration activities. 3.2 Carbon Policy Carbon policies are recently widely considered to effectively reduce use of conventional energy and promote renewable energy. The Clean Development Mechanism (CDM) has been illustrated to be a valuable subsidy in promoting renewable energy development, especially in China to date. However, CDM is unlikely to persist in its current form after There will be bigger uncertainty in the international carbon market in the coming years. Therefore, it is reasonable for China, Korea and Japan to take domestic carbon policies, including carbon tax or carbon cap & trade program to provide a level playing field for renewable energy. 3.3 Grid integration Grid integration concerns are emerging among renewable energy power generation market players in recent years. Reliably integrating high levels of variable resources wind, solar, ocean, and some forms of hydro into the bulk power system will require significant changes to traditional power system. 8 / 11

9 Institutionally, it is desirable to introduce compensatory policies like the regulations on purchase of full amount of renewable electricity by grid-company as considered in China, and/or positive economic incentive policies which encourage power grid companies and renewable power generators to increase investment in transmission infrastructure, optimize electric system operation and improve output of variable renewable power generations. Comprehensive assessment and planning shall also play a key role, as shown in Korea where renewables over 20MW are pre-reviewed for interconnection, and peak contribution rate of renewable is reflected when calculating reserve capacity 10. Technically, we need significant transmission additions and reinforcements, additional flexible resources, enhanced measurement and forecasting of variable generation output, as well as smart grids which also assist in the integration of various measurements. Particularly, smart grid may include the deployment of smart meters to facilitate more demand response programs (especially in industrialized countries), and generation (much of it variable) on the distribution system. Korea The State Grid Co. of China, which controls the transmission of electricity over 26 of China s 31 provinces and regions, has developed an ambitious but controversial plan to construct an informationised, automatic and interactive grid with ultra high voltage (UHV) power lines as its backbone to facilitate a smart grid covering the cycle of delivery by However, Chinese government has yet to draw up a national plan on smart grid. Korea aims to build the world s first nationwide smart grid by 2030, and co-lead with Italy on smart grid partnership among Major Economies Forum on Energy and Climate (MEF). Considering that smart grid is a very complex set of solutions and outcomes based-on the specific country and region drivers, both countries can learn from each other. 4. Conclusions and suggestions China, Korea and Japan have evolved a variety of policies to promote renewable energy development. Generally, competitive bidding, FIT and RPS are effective measures to promote market deployment for renewable technologies in pilot, stable growth and mature development phases respectively, and could be complementary for the renewable energy. Net metering (plus tax credit/subsidy if needed) is suitable for distributed renewable energy generations. Carbon policies shall be in place to provide a level playing field for renewable energy. In the near future, 10 Ministry of Knowledge Economy Korea Power Exchange. December 2008.The 4th Basic Plan of Long-Term Electricity Supply and Demand(2008 ~ 2022) 9 / 11

10 more effort needs to be made to meet the grid-integration challenge. However, in any case, the consecutive implementation of multiple systems requires design to ensure compatibility between systems. Looking at the way ahead, China, Korea and Japan can benefit from indepth communication and enhanced cooperation. At institutional level, the three countries can learn from each other about the lessons and experience in supportive policy, as well as increasingly important intensive assessment and planning of electric system to facilitate large scale utilization of renewable energy. At technological level, more cooperation effort shall be made to develop technologies, products, standards and markets for advanced solar cell, offshore/floating wind turbine and wind farm engineering, tidal and wave power generations, and last but least, smart grid. 10 / 11

11 References 1. Wang Zhongying, etc. THE RENEWABLE ENERGY INDUSTRIAL DEVLEOPMENT REPORT 2009, Energy Research Institute, National Development Reform Commission,GOC/WB/GEF China Renewable Energy Scale-up Program. Chemical Industry Press. Beijing, Li Junfeng. China wind market is booming----growth not only on-shore but off-shore. Bergen, Norway.March 15-16, 2010, 3. UNEP. Overview of the Republic of Korea s National Strategy for Green Growth. April The Presidential Commission on Green Growth of Korea. Road to Our Future : Green Growth National Strategy and the Five-Year Plan (2009~2013), Australian Trade Commission(2010).Clean and Renewable Energy Market Opportunities in Korea and Australia 6. Ministry of Knowledge Economy, Korea Power Exchange. The 4th Basic Plan of Long-Term Electricity Supply and Demand(2008 ~ 2022). December Yoko ITO. New Buyback Program for Photovoltaic Generation: Issues in the view of Electric Utilities Industry Policy Present Status and Promotion Measures for the introduction of Renewable Energy in Japan 9. National Summit on RPS, November 18-19, 2009, Chicago, IL, Hosted by Clean Energy Group with funding support by U.S. DOE, Energy Foundation, and Clean Energy States Alliance 11 / 11